Landstar System, Inc. — FY 2015 Form 10-K Summary
Reporting period: Fiscal year ended December 26, 2015. The filing also reports fourth-quarter results. Unless otherwise noted, financial amounts below are in U.S. dollars.
Business context
Landstar is an asset-light transportation management provider operating mainly in North America. It arranges freight through independent sales agents and third-party capacity providers; truck transportation generated 93% of FY 2015 revenue. The company reports transportation logistics and insurance segments. Its former Landstar Supply Chain Solutions business was sold in 2013 and is reported as discontinued operations.
Financial performance and liquidity
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Revenue | $3,321.1 million | $3,184.8 million |
| Operating income | $241.7 million | $224.4 million |
| Net income | $147.7 million | $138.8 million |
| Diluted EPS | $3.37 | $3.07 |
| Operating cash flow | $216.0 million | $101.9 million |
| Gross profit margin | 15.0% | 14.8% |
| Operating income as a share of gross profit | 48.4% | 47.4% |
- Revenue rose 4%; transportation revenue increased about 4%, as loads grew approximately 8% while revenue per load fell approximately 4%. Lower diesel costs and freight mix contributed to the decline per load.
- Purchased transportation decreased to 76.8% of revenue from 77.3%; agent commissions increased to 8.1% from 7.9%.
- At December 26, 2015, cash was $114.5 million, short-term investments were $48.8 million, working capital was $293.1 million, and the current ratio was 1.8.
- Total debt, consisting of capital lease obligations, was $124.3 million. There were no revolving-credit borrowings; $192.2 million remained available under the $225 million facility. Shareholders’ equity was $466.2 million.
- The company repurchased 2.50 million shares for $161.2 million during FY 2015 and paid $57.9 million in dividends, including payment of the prior-year special dividend. FY 2015 dividends declared per share were $0.30; the prior-year $1.26 included a $1.00 special dividend.
Material changes and fourth-quarter results
- Compared with FY 2014, operating income increased 8% and net income increased 6%. Average loads grew, but lower revenue per load moderated revenue growth.
- For the fourth quarter, revenue was $848.6 million versus $862.8 million a year earlier; operating income was $62.6 million versus $61.2 million; net income was $37.9 million versus $38.5 million. Diluted EPS was $0.88 versus $0.86.
- Truck Brokerage Carriers accounted for 47% of consolidated revenue, exceeding BCO independent contractors at 46% for the first time. BCO truck count increased to 9,500, while turnover rose to approximately 25% from 22%.
- Operating cash flow increased substantially year over year, primarily due to timing of trade-receivable collections. Cash declined to $114.5 million from $163.9 million, with cash used for share repurchases, dividends, and debt and lease payments.
Outlook, risks and unusual items
- The filing gives no specific revenue or earnings guidance. Management expects FY 2016 operating-property acquisitions of approximately $64 million, primarily replacement trailers and IT equipment, and anticipates approximately $15 million for construction of a Laredo freight staging and transload facility, in addition to about $5 million for the land and improvements.
- Key risks include freight-demand and rate cycles, competition, availability and cost of third-party capacity, dependence on agents, and the possibility that higher provider costs cannot be passed on to customers.
- Landstar self-insures portions of claims, retaining up to $5 million per commercial trucking occurrence. FY 2015 insurance and claims costs included $4.9 million of unfavorable development of prior-year estimates, including a $4.5 million pretax charge related primarily to one claim.
- Other material risks include independent-contractor classification challenges, changing safety and environmental rules, cyber or systems disruptions, dependence on key vendors and insurers, and an ongoing multi-state unclaimed-property audit whose outcome is uncertain.
- Ordinary-course claims and litigation are provided for where management considers losses probable; management does not expect the ultimate outcome to materially affect financial condition, though a given quarter or year could be affected. The auditors gave unqualified opinions on the financial statements and internal controls; management reported effective controls.
Important facts for investors to verify
- Whether continued load growth can offset lower revenue per load and any deterioration in freight rates or transportation capacity costs.
- Whether claims frequency, severity, and reserve development remain manageable, particularly given the company’s retained exposure.
- Progress and spending on the planned FY 2016 equipment, technology, and Laredo facility investments.
- The effects of share repurchases and dividends on liquidity, leverage, and per-share results; review the credit agreement’s covenant and distribution limits.
- Developments in the unclaimed-property audit, contractor-classification matters, and transportation regulation.